The housing collapse hit minorities hardest — and the impact is still being felt across America

Valencia
Terrell near an abandoned foreclosed home in 2015 in Atlantic
City, New Jersey.John
Moore/Getty

The housing market collapse that started in 2006 and led to the
deepest recession and worst financial crisis in generations had a
disproportionate impact on minority communities that still
hampers the ability of low-income households to fully participate
in the economy.

That’s according to a new study from the Federal Reserve Bank of
St. Louis that highlights the lasting impact of the nation’s
historic housing downturn on the country’s most vulnerable.

Two key factors amplified the effects of the housing slump on
minority households — home prices often tumbled even more than
average in urban, low-income areas, and minorities often held a
larger share of their wealth in housing than whites.

Federal Reserve Bank of St.
Louis

"The housing market collapse affected millions of American
families across the country, but it hit black and Latino families
especially hard because so much of their wealth was tied up in
housing," the report says.

"Relatively low cumulative increases in long-run wealth for black
and Latino families resulted from large declines in asset values
after 2007, when the financial crisis and then the Great
Recession took their toll," said William Emmons, an economist at
the St. Louis Fed's Center for Household Financial Stability who
was author of the report. "In contrast, from 1989 to 2004, black
and Latino families experienced greater average overall wealth
gains than white and Asian families."

Federal Reserve Bank of St.
Louis

Homeowners’ equity, the market value of residential property
minus the amount of mortgage debt remaining on the property, has
long been the largest component of wealth for black and Latino
families, the study says.

Over the past 25 years, average HOE accounted for close to 50% of
black and Latino families’ wealth, versus 32% of wealth of Asian
or other families, and about 27% for white families. During peaks
reached in 1989 and 2007, HOE represented even more than 50% of
the wealth of black and Latino families on average, the research
finds.

For black and Hispanic families, "after 2007, large price
declines and the loss of many homes through foreclosure or other
distressed transactions served to reduce the 2013 share of wealth
attributed to HOE,” Emmons said.

"The drag exerted by poorly performing housing assets on total
wealth accumulation is starkly illuminated when comparing the
major racial and ethnic groups," he added. "Wealth gains for
blacks and Latinos suffered between 1989 and 2013 because most of
their wealth was concentrated in homeowners’ equity."

During this time period, the inflation-adjusted value of HOE
increased by only 0.5% a year for Hispanic families and actually
declined, on average, by 0.4% a year for black families. White
and Asian families, by contrast, saw significant increases
because they had much larger investments in nonhousing assets.
The table below illustrates the salient and problematic dynamic.